I was alerted to this by a column of FT ‘undercover economist’ Tim Harford. If the initiative passes, Switzerland will become the first country in the world to provide all its citizens with a basic income.

[Universal income] is endorsed not only by experts on inequality such as Oxford’s Sir Tony Atkinson, but by the late Milton Friedman, an unlikely communist. The idea of a basic income is one that unites many left- and rightwingers while commanding very little support in the mainstream. ….

[Friedman] saw an alternative to the current welfare state. We pay money to certain people of working age, but often only on the condition that they’re not working. Then, in an attempt to overcome the obvious problem that we’re paying people not to work, we chivvy them to get a job. Our efforts are demeaning and bureaucratic without being particularly effective. A basic income goes to all, whether they work or not.

Switzerland will soon hold a referendum on reforms to limit compensation of top executives to 12 times that of the lowest-paid employee of their company. The Financial Times agrees that excessive remuneration of executives is a problem, but thinks that a legal cap on earnings would be “a step too far”.

There is a problem with excessive top pay. Bosses of big US companies earn 340 times as much as the average worker, while in the UK the figure is 133 times. At Switzerland’s best-known companies, ratios of 200 times the lowest paid are not unknown. Not only is this unjustifiable in almost all circumstances, it also provides perverse incentives – not least to manipulate share prices rather than invest in businesses.

But arbitrary caps are not the answer. The Swiss proposal would constrain freedom of contract unreasonably. It is also questionable whether any such measure would achieve its intention were Switzerland to impose it unilaterally. Many international businesses and hedge funds would surely just decamp. ….

The responsible exercise of binding votes by shareholders is the best hope for change. Using the law to restrict contracts cannot be the answer to executive greed.

It so happens that Swiss voters last March passed a referendum that imposes binding votes by shareholders on executive pay. The referendum also bans ‘golden parachutes’ for dismissed executives and ‘golden hellos’ for new executives. Interestingly, the referendum, known as the “fat cat initiative”, was championed by Swiss businessman Thomas Minder. At the time, the liberal Austrian financial newspaper Der Standard suggested “the free economic system would benefit should the Swiss example catch on in Europe”.

“We have made Italy, now we must make Italians.” So said Massimo d’Azeglio, an Italian intellectual, just after his country’s unification in 1861. The current generation of EU politicians face a modern version of the d’Azeglio dilemma: They have made a European Union, now they must make Europeans. ….

But “making Europeans” will be much tougher than making Italians: the process of identity formation must take place across a huge territory with entrenched differences of language and culture.

All nation-builders have known that a shared national narrative and a common language are essential building blocks for the creation of a nation. Control of the education system is essential. In 1861, just one in 40 Italians actually spoke Italian. That was rectified through the schools. But today education remains firmly in the hands of the EU’s 27 nations. There is no common school curriculum inside the EU – far less instruction in a common language. ….

If Europe genuinely wanted all its citizens to be taught in a common language, the obvious candidate would be English. But proposing that English should be made the language of instruction in French schools would simply be a new and amusing way of committing political suicide.

I am not sure that a single language – though helpful – is essential for building a nation-state. Numerous nations, including Canada, Switzerland, Belgium, Finland and Spain are able to function with two or more official languages. The number of languages spoken by citizens of the Austro-Hungarian Empire rivaled that of pre-unification Italy. According to Wikipedia, only 36.8% of the population in the Austrian Empire spoke German as a mother tongue. In the Kingdom of Hungary 54.4% of the total population spoke Hungarian as a mother tongue, and 10.4% spoke German. The Dual Monarchy had 11 officially recognized languages, and it collapsed in 1918 only because it was on the losing side of World War I.

The European Union in the 21st century, like the Austro-Hungarian Monarchy in the 19th, might thrive despite its ethnic and linguistic diversity. On the other hand, 23 official and working EU languages does seem excessive. How about reducing that number to two – English and French – patterned on Canada. France, like the province of Quebec, would have French as its official language. Belgium, like the province of New Brunswick, would be bilingual, with two official languages. In the rest of the EU, English would be the official language of government and public education. Or, moving to a Swiss model, the EU could add German to its list of official languages.

Just as in Canada, governments should be allowed to offer immersion schooling in any official EU language, even if it is not the official language of the country. (Four of the seven public high schools in Greater Victoria, BC, offer French Immersion even though almost no-one speaks French in Victoria. Many parents think, rightly or wrongly, that fluency in French will give their child an advantage over those who speak only English.)

An op-ed column in today’s New York Times is flawed, but not fatally, as it does make the important-but-often-ignored point that income-linked subsidies are an implicit tax on the poor.

Americans seem to like the idea of broadening health insurance coverage, but they may not want to be forced to buy it. …. To ease the burdens of the insurance mandate, the reform proposals call for varying levels of subsidy. …. [But this produces a problem that] economists call “implicit marginal tax rates.”

The fiscal reality is that not all income groups can receive equal subsidies; as a family earns more, its subsidy would probably decrease, eventually falling to zero. But then we are taking money away from the poor as they climb into higher income categories. This is a disincentive to earn more, and the strength of the disincentive increases with our initial generosity. ….

Congress could tweak the subsidies so they don’t phase out so quickly, but then we’re back to very high fiscal costs and subsidies for many families in the higher income classes. ….

If there is a problem with mandates, why do they seem to work in countries like Switzerland and the Netherlands? One answer is that … mandates … fare better in those nations because of their greater equality of incomes. In other words, it’s less of a stretch to offer poorer people coverage that is roughly comparable to that of the wealthy.

Incomes may be more skewed in the US than in Europe, but this fact does not take us very far as an explanation for policy differences regarding health insurance mandates. The real reason mandates have worked in Switzerland (since 1996) and the Netherlands (since 2006) is the combined power of government regulation and government subsidies. Insurers in both countries are forced to offer the same basic, mandated policies to everyone at a flat rate, regardless of the person’s health status. Citizens of both countries are free to supplement their basic policies with additional insurance, and many do. There is neither compulsion nor subsidies for supplemental policies that cover such non-basic services as dental care or private hospital rooms.

In the Netherlands, basic insurance is financed 50% from payroll taxes, 5% from general government revenue and 45% from premiums paid directly by the insured. Premiums are not required for children under the age of 18, regardless of household income. In addition, about two-thirds of Dutch households receive income-tested “health care allowances” that subsidize the premiums they pay for basic insurance. Co-pays are not allowed, but coverage of the basic benefit package is subject to a 150 euros deductible each year.

In Switzerland, subsidies are less generous. Swiss citizens – even children, or rather parents on their behalf – purchase health insurance individually. Still, approximately a third of the population receives subsidies intended to keep the cost of premiums to a maximum of 8% to 10% of household income, depending on the canton. Insurers must offer basic policies with a minimum deductible of 300 CHF ($297) to a maximum of 2500 CHF ($2477). Most Swiss choose the lowest deductible, and very few the highest. Co-pays of 10% are allowed, but are capped at a 700 CHF ($694) out-of-pocket maximum each year.

An important lesson from the experience of these two European countries is that government involvement in health insurance does not end with mandates. At the very least, subsidies are needed for premiums paid by those with low incomes. Tyler Cowen correctly points out that income-based subsidies (targeting) is an implicit tax on the income of the poor. For this reason, the US would be wise to avoid following the path of Switzerland and the Netherlands. It would be best to opt instead for a universal system, funded largely from general government revenue or – if preferred – from an earmarked tax, such as a national sales or value-added tax.

The US already has in place a system of income-tested subsidies for health care. Professor Cowen’s criticism of insurance subsidies applies equally to the existing Medicaid scheme.

Everyone agrees that the health bill approved by the Senate finance committee last week is a flawed bill. Nonetheless, argues Financial Times columnist Clive Crook, “the bill is a breakthrough” and Barack Obama is right to call it a “critical milestone”.

Nobody actually likes the measure. A muddle of awkward compromises, it has something to offend everyone. …. Yet this is the furthest a bill to guarantee access to health insurance in the US has ever come. …. An entitlement that other rich countries have long taken for granted is finally within reach. ….

If this bill or something like it becomes law, Mr Obama’s prospects will revive, and he will have an indelible achievement to his name.

Why indelible? Because this dispensation will never be reversed. The country will decide it cannot live without it. Medicare, the publicly funded health programme for the elderly, is grossly inefficient and costs far too much, but ending it is unthinkable. The promise of access to affordable health insurance, once made, will never be renounced.

The Senate bill does nothing to address the high costs of health care; indeed, increased costs are inevitable because wider access to health insurance does not come cheaply. The US is a wealthy nation so, one might argue, can easily afford an increase in waste and inefficiency as a politically necessary price to pay for a long overdue reform. Eventually, as health costs rise even more, there will be pressure to reduce costs by moving to a single-payer system or, at the very least, to tight regulation of basic health insurance policies along the lines of the Swiss system. On the Swiss system, see this post by Jason Shafrin, a young healthcare economist based in California.

Jeffrey S. Flier, dean of the Harvard Medical School, advocates a cautiously conservative reform of US health care. His main recommendation is to extend the tax subsidy for health insurance, currently limited to employers, to everyone. This measure, according to Flier, “would enable the uninsured to use tax-sheltered money to buy health insurance for themselves” and give insured employees the freedom to choose their insurance provider. I see at least three problems with such a policy. First, it does not address the very serious problem of the high cost of US medical care. Second, it provides no help for the unhealthy, who find it impossible to purchase personal insurance at affordable rates. Third, most of the benefits accrue to those with high incomes: tax shelters are of little or no value to those with little or no taxable income.

Harvard economist Greg Mankiw posts an excerpt and a link to Flier’s article, but fails to mention that the online journal that published Dean Flier’s views contains a number of articles on health care reform in its current issue. One of these, authored by Professor Marc Feldmann of the Imperial College School of Medicine in London, UK, offers an international perspective. Here is an excerpt:

American medicine has much to be proud of. …. But there are also problems on a huge scale, which means that the US’s world-leading health expenditure (16% of GNP) is delivering health care that is worse than in much of Europe in terms of clearly analyzable indicators, such as infant mortality or length of life. European countries like the UK typically spend 8%–10% of GNP on health care. ….

The lower-percentage cost of health care in Europe covers all the population, while the US’s 16% still leaves 45 million uncovered. Clearly there is an unanswerable case for major reform in order to deliver value for money, not just for the lucky ones able to avail themselves of the best hospitals, or of quality cancer care, but for all the population. The humanitarian principle — quality health care for all — that the European nations have espoused, though practised in different ways, leaves none of the population disadvantaged and uncovered. ….

[T]here are proven ways of delivering health care that is both cheaper and better for most of the population than the current style in the US. There is no need to look across the Atlantic, where cultures are different. Just look closer, north, to Canada. The Canadians are all insured, there are no health care bankruptcies, and they live longer than in the US.

Professor Feldmann is overly optimistic. Even the Canadian single payer system — socialized health insurance with private provision of medical care — is too radical a model for many US policymakers. Switzerland’s system of universal health care could be a more attracive model. All Swiss residents by law must purchase private insurance, selected from more than 30 insurance companies, which gives them access to their choice of private medical care. The system works well, but requires tight government regulation and generous subsidies for those with low incomes.